Search for Income Leads to Emerging Markets

Fund manager Michael Hasenstab says most U.S. bonds are overvalued, but he's finding big yields by looking in markets that other investors fear.

This transcript has been automatically generated and may not be 100% accurate.

I ... Warren Buffett admonition to be greedy when others are fearful also wants the box and Jack Otter Editor Barron's dot com ... under Michael cars and stop was the chief investment officer ... for Franklin Templeton Global bonds ... ah so I wanna talk to you about where you're going where others fear to tread but first we get your beer broad outlook ... for the bond market would hear the Morningstar conference to give an interesting speech ... tell us what you see in the next six months or so for the bond market ... opening on the back of what it says one Buffett I would say right now is the time to be ... fearful ... when people are greedy ... and there's a lot of ... movement into interest rate risk over the last six months and we are taking the exact opposite of that we have moved to ... unionize the portfolios much as we can affect the ... negative correlation ... to interest rate risk because we think rates are going to go higher ... and to Number one objective in our strategy is avoid interest rate exposure number two ... is selectively exploit opportunities in emerging markets where ... others are panicked ... I can run from those markets we have we have stepped in itself ... minimize interest rate risk and selectively in emerging markets I presume that you're going to emerging markets are taking a little bit of credit risk but you feel that's okay ... yes so we're not buying typically local currency ... denominated bonds of those countries places like Korea ... Mexico I just came from Hungary we think there's an exciting prospects there ... and sometimes to dollar denominated debt in a place such as Ukraine ... so the Ukraine obviously is a somewhat scary place to invest with all that's going on what percentage of your portfolio is there an end when are you how well will you being rewarded for taking that risk ... by thing when there's conventional wisdom of fear ... and panic ... that is when you have an opportunity provided their good underlying fundamentals in Ukraine was was really ... those two factors coming together on the one hand you had universal panic and fear hands messy headlines ... the other hand the underlying fundamentals in terms of their ability to pay back their debts ... on their access to global capital which was very positive with or their debt to GDP was less than ... forty percent ... they have thirty billion as the US that would be ... would be that would be nice sell ... at low levels of debt ... as well as access to national capital markets and a lot of fear in the marketplace ... and that that was yielding typically I ran around go anywhere from eight to thirteen percent ... over the course of the last couple months that is impressive ... and so Korea are you also mentioned I've that economy is is coming along pretty well ... here for real how the cloak grow close to three percent this year ... they're running almost six percent current account surplus and similarly ... don't have a lot of debt him run around thirty percent debt to GDP so in ... a rapidly growing economy current account surplus appreciating currency ... and by buying toward a government that we can around three percent healed ... without taking interest rate risk ... in a credit everything has been fundamentals ... so I have to ask about two hundred pound gorilla which is China ... I know that economy obviously has been growing at an incredible speed for decades and the seven percent of its the people of all about the numbers ... but it strikes me that at some point that stocks and the meaning that doesn't go one forever are you worried ... by absolutely that the ten to twelve percent growth we've seen for decades doesn't go on forever ... and what we're seeing now is a key celebration as their economy becomes larger ... as it shifts away from just an investment led to more of a consumption and investment led economy ... we are seeing those rates begin to decelerate which is a healthy dynamic ... China today trying a ten percent would overheat ... China today should be growing more like seven percent and we think ... given the current structure their economy ... and given ... the ability of the government to um ... to facilitate any restructuring that's necessary in the banking system ... given higher wages leading better consumption seven percent growth in the next ... twenty years is certainly achievable ... and say you own sovereign debt in China ... AXA beyond anything directly in China but dies he said is the nine hundred am grille that affects the world so ... if you want any risk asset to ... your long China ... a hard landing in China would accept ripple effects globally that to you always have taken it out what happens in China ... ah but quick directly places like ... Korea ... which sells cars and automobiles and ships to China or Malaysia that sells palm oil to the Chinese consumer ... there many countries that are benefiting from ... a healthy Chinese on ... what causes the thanks for much my pleasure thank you ...